It's peak earnings season, with positive reactions for Dow stocks Caterpillar (CAT) and McDonald's (MCD) driving the blue-chip index to record highs this week. The action is far from over, with oil majors Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) slated to unveil their quarterly results before tomorrow's open. Although CVX and XOM have been rising with oil prices recently, short-term options traders are on the defensive. Here's a closer look at how these speculators are lining up on CVX and XOM ahead of earnings.
Chevron stock is up 12.7% from its August lows near $105.30. The shares topped out at a three-year high of $120.89 on Oct. 16, but have since pulled back to the $118 region -- home to their late-September and early October highs, as well as their year-to-date breakeven mark. Today, CVX shares are up 0.2% at $118.68.
In the options pits, short-term speculators are more put-skewed than usual, per CVX's Schaeffer's put/call open interest ratio (SOIR) of 1.42 -- in the 78th annual percentile. While the bulk of this open interest is found in the January 2018 series, the November 115 strike is home to peak front-month put open interest. Data from the major options exchanges confirms some buy-to-open activity here, meaning traders expect Chevron to breach $115 by expiration at the close on Friday, Nov. 17.
Historically speaking, the stock is positioned to end the week strong. Over the past eight quarters, Chevron stock has closed higher in the session following the company's earnings report six times -- averaging a gain of 1.6%. This time around, the options market is pricing in bigger 2.2% move, regardless of direction, based on the equity's at-the-money implied volatility data.
Exxon Mobil shares touched an annual low of $76.05 in late August, but have since surged 9.7% to trade at $83.42. But while the stock sliced through its 200-day moving average earlier this month -- a trendline XOM had been staring up at for most of the year -- it's now struggling against familiar resistance in the $83-$84 region, a 50% Fibonacci retracement of the equity's 2016 surge.
Short-term options traders, meanwhile, have rarely been as put-heavy toward XOM as they are now, based on the stock's SOIR of 1.48 -- in the 100th annual percentile. While this data is skewed by heavy activity in the January 2018 series, nearer-term players have targeted the November 80 put.
Data points to a mix of buy- and sell-to-open activity here, with those purchasing the puts expecting a quick retreat below $80. Those writing the puts, meanwhile, are betting on either a short-term floor or a post-earnings volatility crush.
Looking back over the past eight quarters, Exxon Mobil has had a decidedly different post-earnings path than its Dow counterpart -- closing higher in the session subsequent to the firm's report just three times. On average, XOM has posted a single-day swing of 1.3%, regardless of direction, with the options market pricing in a slightly higher 1.9% move for tomorrow's trading.